Entergy Corp. wants to link its Louisiana generators to a network of plants that stretches from the Gulf of Mexico to northern Canada, a move the company says would lower monthly electric bills for consumers, reduce blackouts and provide better power for industry.
Entergy would turn over basic control of its power grid to an Indiana-based nonprofit that would generally decide which plants generate electricity and what infrastructure needs upgrading.
The head of Entergy’s Louisiana subsidiaries, Bill Mohl, said the push to join a “regional transmission organization,” called an RTO, is the utility’s biggest ongoing project.
The New Orleans-based Entergy owns most of the transmission lines that crisscross Louisiana, delivering power from generating plants to homes and businesses.
Officials with industry, other utilities and municipalities that rely on Entergy’s transmission lines, even if they buy their power from another source, generally support the company joining the regional group.
Many of them argue that Entergy’s failure to keep the transmission lines robust is a leading cause of blackouts — like the one in Acadiana during the Christmas holidays — and hinders efforts to attract new businesses.
A May 12 “educational filing” with state regulators estimates that pooling resources and operating in conjunction with other utility companies could lower Entergy’s production costs by $1.6 billion during the next decade. That in turn POWER PLAY would reduce monthly bills by about $2 to $3 per $100 of electricity bought by the typical residential customer.
“That, in a nutshell, is the primary advantage,” said Jimmy Field, chairman of the Louisiana Public Service Commission. “There appear to be considerable savings. We just have to test Entergy’s assumptions to make sure there really is the benefit they say there is.”
Entergy expects to formally ask for a “change of control” in the next few weeks. The PSC would vote on whether to allow Entergy to join an RTO by December 2013, and if so, which of the seven organizations nationwide. Federal regulators would then vote on the move.
Entergy wants to connect its 15,500 miles of transmission lines that distribute power from plants to customers with the 57,453 miles of lines controlled by Midwest Independent Transmission System Operator Inc., based in Carmel, Ind.
Known as MISO, it is a nonprofit coalition of utility companies servicing about 40 million people in Wisconsin, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana, North Dakota, Ohio, Pennsylvania, South Dakota and the Canadian province of Manitoba.
Entergy powers 2.7 million homes and businesses in Arkansas, Louisiana, Mississippi and Texas.
Cleco Corp., based in Pineville, has 1,200 miles of transmission lines in Louisiana serving about 279,000 customers. Shane Hilton, Cleco’s general manager of retail operations, said the company is looking at scenarios that include joining MISO or another RTO.
Another coalition, called the Southwest Power Pool, based in Little Rock, wants Entergy to join its RTO. Mohl said Entergy wants to align itself with MISO largely because the group’s “Day 2 Market” has been running since 2005.
A “Day 2 Market” lets members buy and sell surplus electricity. A 2009 study by international energy economists The Brattle Group — cited by Entergy — found joining a Day 2 Market lowered a utility’s daily cost of making electricity by about 4 percent. Fuel costs, which customers also must pay, went down too, the study said.
With plans to build a new nuclear power plant in St. Francisville on hold, Entergy’s RTO proposal is the largest single issue the PSC has had to address in years, Field said. Louisiana’s power problems are caused by transmission congestion, not by a lack of available electricity, he said.
“We have told Entergy we want transmission built. That’s a cheaper alternative to building plant after plant,” said Field, of Baton Rouge.
PSC Commissioner Clyde Holloway of Forest Hill recently made a similar point.
An independent coordinator who can identify where congestion takes place — as opposed to relying solely on the owner of the lines — would have considerable sway over whether it is more prudent to improve transmission or build another plant, Holloway said.
Mohl, president and chief executive officer of Entergy Louisiana LLC and Entergy Gulf States Louisiana LLC, says he wakes up every morning knowing his company must provide a certain amount power to more than a million Louisiana homes, businesses and industries during the day. His staff generally knows how much power is needed and where it must go.
Less predictable variables also enter the equation, such as an unexpectedly hot day that sharply increases the power drawn by air conditioners or an order for one of the refineries along the Mississippi River that needs to be filled quickly.
Each of Entergy’s generation plants can make a certain amount of electricity. The price varies depending on the efficiency of the plant and the cost of the fuel being used, Mohl said.
The daily calculation includes not only how much electricity should be made by each plant, but also how to route that power to the customers within a certain cost, if possible.
The electricity is transmitted from Entergy’s plants through high voltage wires — the giant metal structures visible from highways around the state — to substations that reduce the voltage so the power can be distributed through smaller lines to homes and businesses.
Under Louisiana law, a private utility’s customers must pay the costs for making and transporting electricity. Those costs, along with a predetermined profit, make up the “base rate” that appears on monthly bills.
Brenda Harris, chairman of the Louisiana Energy Users Group, a trade association for the state’s largest refineries and manufacturing facilities, said in an email that LEUG “is still reviewing the numbers and assumptions that underlie the projected benefits.”
A New Orleans-based consumers group, Alliance for Affordable Energy, is reviewing the numbers and will file an opinion once Entergy submits its official request, said Casey DeMoss Roberts, the group’s executive director.
“This is an evolving thing, these RTOs. It’s hard to compare our situation to other utilities who have made the switch,” DeMoss Roberts said. “Some of the things about an RTO are very attractive. The biggest one is that they would manage transmission from an efficiency point of view instead of a competitive point of view.”
Roughly 1 million customers in 54 parishes get their power from nine cooperatives. New Jersey-based NRG Energy Inc.’s local company, Louisiana Generating LLC, makes the power for many of them.
Most of that electricity is moved from generating plants to the cooperatives primarily along Entergy’s transmission lines at a cost of about $50 million a year, said Jennifer Vosburg, president of Louisiana Generating.
Vosburg, who said NRG generally supports Entergy joining an RTO, suggests thinking of the transmission system like highways. Around rush hour, the number of vehicles slows progress.
Like with freeways, improving the electrical transmission system requires significant investments, she said, and those costs are paid by the utility company’s customers.
“It is a balancing act, because you need to make the right improvements that make sense economically,” Vosburg said. “The economics of the transmission upgrades that get assigned often kill the deal. The hope is that by joining a RTO, there will be a truly independent entity planning and making the most efficient use of the transmission system.”
In Louisiana, Entergy owns generating plants and most of the transmission lines. Regardless of the truth, the perception is that Entergy balks at transmission improvements that could more easily deliver a competitor’s cheaper electricity, said Terry Huval, director of utilities for the City of Lafayette.
Huval said the electrical grid has not kept up with the population growth in Acadiana. An RTO can identify specific stretches of congestion to use as evidence for improving transmission in an area, he said.
“There was really no mandate to build transmission if Entergy decided it was not in its best interest to do so,” Huval said. “Having some independent entity direct would be a positive for the area.”
The results of not keeping the system robust is easily documented, Huval said
With temperatures in the mid-20s on Dec. 27, 2010, heavy demand — coupled with downed power lines — cut electricity to more than 50,000 customers from New Iberia to Crowley served by four utility companies.
A month earlier, a blown transformer thrust 62,000 customers in Lafayette into darkness during the hour or so it took to reroute the electricity. In February, a car wreck that knocked down icy lines cut power to about 30,000 Acadiana customers.
Huval said his agency is studying the ramifications of Entergy’s proposed move.
Footing the bill
Wayne Schug, who coordinates strategy for MISO said deciding who in the group pays for improvements depends on what drives the need.
For instance, if the transmission upgrades primarily benefit a local community, then Entergy’s customers would have to pay. If the project improves transmission for others in the co-op, then the customers of other utility companies would also help pay.
But sometimes MISO’s decisions are challenged.
In late June, Michigan officials — including Gov. Rick Snyder — appealed to the Federal Energy Regulatory Commission to get out of paying for a 230-mile transmission project in South Dakota and Minnesota.
PSC Commissioner Eric Skrmetta, of Metairie, said the real issue is who is going to pay for the improvements. Any upgrade to Entergy’s lines may help out a competitor’s customers while being paid for by Entergy’s customers.
Though an RTO would spread the cost of upgrades among more customers, few south Louisiana ratepayers will want to pay for an improvement that benefits a handful of people in Wisconsin, he said.
“RTOs can reduce costs and improve reliability. What we don’t want to do is compromise the state’s jurisdictions,” Skrmetta said.